US-based Kingland Systems, specializing in data management and regulatory compliance for financial services, insurance, and agriculture, has announced the closure of its subsidiary office in China. The decision, which came as a shock to the local workforce, will result in the termination of all 151 employees.

Employees were informed of the closure on Wednesday. The company has committed to providing the legally required severance pay plus an additional month’s salary. Despite the abrupt announcement, Kingland Systems has not offered any explanation for the closure and has not provided any immediate comment.

This move comes in the wake of increasingly challenging economic conditions in China, coupled with rising geopolitical tensions. New regulations, such as stricter data-security laws and an anti-espionage law, have made operating in China more difficult for foreign businesses.

The economic outlook in China has been bleak, with foreign direct investment (FDI) seeing a significant decline. In the first quarter of this year, FDI dropped by 26% compared to the same period last year, amounting to 301 billion yuan (US$41.6 billion). These factors have led many foreign firms to either exit the Chinese market or consider reducing their presence since the COVID-19 pandemic.

Data from Qichacha, a corporate data provider, indicates a growing trend of foreign companies reevaluating their business strategies in China due to these pressures.

The closure of Kingland systems reflects broader concerns among foreign businesses about the viability of continuing operations in China under current conditions.

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• The Apple M4 Chip Explained: How It’s Redefining Performance, Efficiency, and User Experience

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A recent report by the Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG) reveals significant projections for the U.S. semiconductor industry by 2032. The findings suggest a remarkable growth trajectory, driven by strategic policies and industry investments.

According to the report, the United States is poised to triple its domestic semiconductor manufacturing capacity over the next decade. This surge is expected to elevate the U.S. share of global chip manufacturing capacity from 10% in 2022 to 14% by 2032.

Several factors contribute to this anticipated growth. The enactment of the Chips and Science Act in 2022 is noted as a pivotal step in bolstering U.S. chip manufacturing capacity. Additionally, strategic investments by industry giants like Taiwan Semiconductor Manufacturing Co (TSMC) in building a 2-nanometer plant in Arizona, with a planned investment of US$65 billion, further solidify the U.S.’s position in the semiconductor landscape.

The Chips and Science Act has changed the game for the US

The Chips and Science Act has facilitated industry investments, crucial for semiconductor growth. Without this legislation, the U.S. would have captured only 9% of global capital expenditures (capex) by 2032, compared to the projected 28% with the Act in place.

While the report highlights significant growth prospects, it also underscores the importance of supply chain resilience. It warns that industrial policies could create bottlenecks, increasing supply chain risks. Hence, there’s a call for targeted, distributed, and market-based investments to enhance resilience.

The report also talks about the worldwide efforts to strengthen semiconductor industries. Initiatives such as the CHIPS Act in the U.S., the European CHIPS Act, and China’s IC Industry Investment Fund are notable incentives driving global semiconductor investments.

Looking ahead, the report emphasizes the necessity for additional government policy actions to address supply chain vulnerabilities and fortify the U.S. semiconductor industry. Recommendations include expanding critical CHIPS Act incentives, promoting free trade, investing in scientific research, and broadening the STEM talent pipeline.

The CHIPS Act incentives have already spurred substantial investments in the U.S. semiconductor industry. Over 80 new projects across 25 states have been announced, totaling nearly $450 billion in private investments. These projects are anticipated to create over 56,000 jobs in the semiconductor ecosystem, further bolstering the U.S. position in the global semiconductor landscape.

Related:

• US-China tech war takes a new turn as US reviews RISC-V chip technology to stop China’s dominance
• US pressure fails to slow down China’s semiconductor rise: South Korea feels the heat
• China rolls out subsidy scheme to boost domestic semiconductor industry and counter US restrictions
• SoftBank-backed Arm plans to make AI Chip, targeting 2025 launch

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The technology war between the United States and China has taken a new turn with the emergence of RISC-V, an open-source chip technology. As China intensifies its focus on RISC-V as an alternative to reduce reliance on foreign technologies, the US Department of Commerce has decided to review this development and take new measures against China’s use of RISC V-chip.

RISC-V, known for its versatility and suitability for specialized chips in AI and mobile devices, has garnered significant attention in recent years. China’s rapid adoption of RISC-V is evident, with over 300 Chinese companies leveraging the technology, and major tech giants like Alibaba, Huawei, and Tencent investing in RISC-V-based chips. This concerted effort by Chinese firms underscores the strategic significance of RISC-V in the ongoing technological competition between the two global powers.

The heightened scrutiny from the US stems from concerns about the implications of China’s increasing dominance in RISC-V. Lawmakers have urged the Biden administration to take action to prevent China from leveraging RISC-V to its advantage, citing potential risks to US national security and economic interests. The Commerce Department’s review aims to assess these concerns and explore potential measures to address them.

Google’s recent decision to remove RISC-V support from the Android kernel has further enhanced tensions surrounding the technology. While this move may impede RISC-V chip vendors targeting Android systems, analysts suggest that developers could potentially restore RISC-V support with additional effort. Nevertheless, the implications of Google’s decision highlight the broader ramifications of the US-China technological competition on global innovation and supply chains.

However, controlling China’s access to RISC-V technology presents a formidable challenge for US policymakers. The relocation of RISC-V International to Switzerland in 2020 was a strategic move aimed at insulating the organization from geopolitical influences and limiting US regulatory options. Imposing restrictions on RISC-V could disrupt the global supply chain and also hinder US companies’ participation in international RISC-V development efforts.

As the Commerce Department navigates these complexities, it must strike a delicate balance between safeguarding national security interests and preserving the competitiveness of US companies in the global marketplace. The outcome of this review will not only shape the future trajectory of RISC-V technology but also influence the broader dynamics of the US-China technological rivalry.

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• US reviews national security implications of China’s use of RISC-V Chip technology
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US President Joe Biden is poised to sign an executive order aimed at curbing critical U.S. technology investments in China, according to reliable sources familiar with internal deliberations.

The forthcoming executive order, scheduled for the second week of August, focuses on three key areas: semiconductors, artificial intelligence, and quantum computing. Bloomberg News reports that it will not impact existing investments and will only target specific transactions. However, other technology deals will be subject to mandatory government disclosure.

The decision comes amid heightened concerns over China’s growing influence in the technology sector and potential national security risks. By limiting crucial technology investments in China, the Biden administration aims to safeguard sensitive American technologies from being exploited or used against U.S. interests.

While the exact details of the order are yet to be released, the focus on semiconductors, artificial intelligence, and quantum computing underscores the strategic significance of these sectors in the global tech landscape. The move is likely to have significant implications for tech companies and investors involved in cross-border collaborations between the two economic giants.

Beijing has already warned of retaliation should the U.S. impose new limits on technology or capital flows. The Chinese envoy in Washington made this clear earlier this month, signaling potential tensions between the two nations over technology and economic policy.

The internal discussions within the Biden administration have reportedly shifted from defining the measures’ substance to planning the order’s rollout and accompanying regulations. The complexity of the matter has led to several delays in finalizing the order, with the timing slipping numerous times.

As the global tech competition intensifies, this executive order could mark a pivotal moment in U.S.-China relations, impacting technology trade, investment, and research collaborations. Observers will closely monitor how China responds to the order and its potential repercussions on the global tech supply chain and market dynamics.

The Biden administration’s move comes in the context of broader efforts to maintain U.S. technological leadership and national security in a rapidly evolving global technology landscape. The extent and implementation of the order will be crucial in determining its overall impact on U.S. businesses, China’s tech sector, and the delicate balance of technology cooperation and competition between the two superpowers.

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U.S. Secretary of State Antony Blinken called upon China to closely monitor and investigate the involvement of private entities within its jurisdiction that could potentially contribute to Russia’s military capabilities, in the midst of the ongoing Ukraine conflict. 

The Secretary of State, while recognizing the complexity of the situation, highlighted the significance of preventing the flow of technology that could be utilized in an adversarial manner against Ukraine.

Although Secretary Blinken did not provide specific details regarding the nature of the technology or the identities of the private companies involved, his request reflects the growing apprehension within the international community regarding the possibility of third-party contributions fueling the conflict.

In a statement issued on Monday, Secretary Blinken underscored his concerns while clarifying that he has not come across any evidence indicating that Beijing is directly providing lethal aid to Moscow.

Since Russia’s invasion of Ukraine in February 2022, Western powers have provided Ukraine with substantial military assistance, including billions of dollars worth of support. During this time, China has faced allegations, which it vehemently denies, of supplying lethal weapons to Russia. It is worth noting that China and Russia had previously announced a “no-limits” partnership shortly before the invasion of Ukraine.

Addressing the issue of lethal aid to Russia in the context of the Ukraine conflict, Secretary Blinken clarified that the United States and other countries have received assurances from China that it is not and will not provide lethal assistance to Russia for use in Ukraine. This statement aims to dispel concerns regarding China’s alleged involvement in supplying weapons that could escalate the conflict further.

While the visit to Beijing did not yield any major breakthroughs, it served as an important platform for reaffirming diplomatic channels and clarifying positions between the United States and China. Both sides acknowledged the significance of maintaining stability and averting the risk of armed conflict. The discussions highlighted China’s stated commitment to refrain from providing lethal assistance to Russia for use in Ukraine, as confirmed by Secretary Blinken.

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The US sanctions have crippled the Chinese semiconductor industry, the result of which can be seen in the sharp decline in semiconductor production. Dwindling consumer demand and the economic downturn have also contributed to the fall in the production of chips in the world’s largest semiconductor market. 

In the first two months of 2023, Microcomputer shipments saw a drop of 21.9% whereas the smartphone output saw a 14.1% reduction year on year. When it comes to semiconductor imports, China saw a sharp drop of 26.5% which is way more than the 15% drop recorded in 2022. Last year the IC exports of China surprisingly showed an increase of 0.5%. However this year the IC exports also decreased by 20.9% year on year. 

Effect of US Sanctions and Zero Covid Policy on semiconductor business:

China which is the largest semiconductor market in the world has generally shown an upward growth trajectory in its semiconductor business. However, the ongoing US sanctions combined with the zero covid policy and economic slump saw the country recording its biggest monthly decline ever. Last year in October the semiconductor output fell by 26.7% year on year making it a record-breaking fall for the sector. 

However after Beijing changed its Zero Covid Policy, the overall economic situation has become better in the country. China’s manufacturing sector is now rebounding from the slump and showing an upward trend for January and February 2023. This year in February, the manufacturing purchasing managers’ index (PMI) beat all expectations by rising to 52.6, the highest reading since April 2012. Even the semiconductor industry which showed an overall decrease in output is performing slightly better as compared to its performance in October last year. 

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ASML has reported that an employee from China stole data on Lithography System Details from its chip machine depository. The employee who worked in ASML’s China-based company allegedly stole data from a repository that stores the company’s technical information. 

ASML has not elaborated on the nature of the theft nor the importance of the stolen data. However, sources report that the breach occurred in the facility that also had the data for the advanced EUV Lithography machines. The lithography machines are one of the hottest items of the decade as they create the chips used in almost everything from smart computing, home devices, EVs, and Communication devices to military weapons and spaceships. 

Dutch Trade Minister Liesje Schreinemacher called the incident economic espionage and said the investigation was underway and they were waiting for the results. 

ASML Holdings is a Dutch multinational corporation that specializes in the development and manufacturing of photolithography machines, used to produce computer chips. As of 2022, it is the largest supplier of the semiconductor industry and the only company in the world that makes and supplies extreme ultraviolet lithography (EUV) photolithography machines used to manufacture the most advanced chips. 

ASML is one of the highest-valued European Tech companies in the world and a key player in the ongoing US-China Tech War. The technology war that started in 2018 when the Trump administration banned Huawei and ZTE equipment is now escalated with the ban on exports of semiconductors to China. The US sanctions prohibit exports of semiconductors, chip manufacturing machines, technical know-how, and personnel to Chinese companies. The Biden administration successfully roped in allies like Japan and Netherlands to also impose these sanctions on China.

US and China are trying to outrun each other in a global technology race and companies like ASML are stuck in the middle of their fight. The Dutch company has already been a target of multiple thefts and data breaches. Last year ASML accused a Beijing-based firm of stealing important data back in 2015. It has also claimed that a company named Dongfang Jingyuan Electron has obtained sensitive technology and transferred it to China. A couple of months back, a male employee was also accused of stealing non-sensitive technical information. 

According to the SCMP report, the most recent attack was on a product life cycle management program known as Teamcenter which stores technical information on product development made by different teams. Teamcenter is a software supplied by Siemens that is used by ASML employees. 

Both ASML and Siemens have declined to comment on the incident. It is still not clear, how the employee stole the data from Teamcenter and whether or not he has any connections with the Chinese government or military. However, the latest data theft has escalated the trade war. The US and its allies are labeling the incident as espionage and have involved top-level diplomats in the investigation. 

• ASML Expects to Continue Business with China Despite US Pressure
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• Semiconductor Industry Association asks Japan and Netherlands to Tighten Curbs on China

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Last week Japan and Netherlands decided to join the US and agreed to abide by the additional sanctions on semiconductor export to China. 

However, Semiconductor Equipments and Material International (SEMI), an industry association that includes the world’s top semiconductor designing, manufacturing, and selling companies, stated that the curbs laid on China were not strict enough.

According to SEMI, if US allies like Japan and Netherlands did not levy tougher curbs, then the sanctions would be ineffective.  The industry group has openly sided with the US in the US-China Tech war and said that it had a vested interest in the US and welcomed the additional sanction agreement on China. 

Though the exact details of the agreement are undisclosed, SEMI believes that China will keep on growing in the semiconductor industry unless the allies come together and agree to wider control and restrictions on Chinese fabrication facilities.

Semiconductor Fabrication facilities or fabs are factories that make integrated circuits. Semi said that as long as Chinese fabs are running, the country has a strong chance to manufacture advanced chips. It further added that allies need to restrict their engineers and others from supporting China’s high-end fabs.

The current sanctions levied by the Biden administration ban the export of semiconductor manufacturing equipment, technology, and personnel to China. American nationals are not allowed to partner with or work at Chinese semiconductor companies. 

Japan and Netherlands have agreed to restrictions on semiconductor export to China. Essentially, these two countries have agreed not to export advanced chip-making equipment and cutting-edge technology to China. However, older technologies and equipment are still exported to China. 

China is the largest semiconductor market in the world and aims to be a global leader in advanced technology and Artificial Intelligence. With its current technology, China can make chips that can be used in low to mid-level industries like washing machines, air conditioners, automobiles, and smart home appliances. However, it still relies on the US and its allies to make advanced chips used in weaponry, Artificial Intelligence, and Cloud computing. 

Though Japan and Netherlands have agreed to additional restrictions on China, the allies are not in favor of a complete ban as it will adversely affect their economies which are largely dependent on technology exports to countries like China. 

• China Faces Major Threat to Semiconductor Autonomy, as Japan and Netherlands Plans to Join the Ongoing Tech War
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